View from the institute: Change – supporting growth

First the huge disruption, then the prolonged period of change. The first can be hard to survive, but people tend to rally around to support each other when there is an emergency. The second can prove even more challenging to manage – and this is the phase we are currently entering.

We are not the same people or the same organisations we were before the pandemic. We have had new experiences and many have refocused and reassessed their aims and values, learnt new ways to work and developed different relationships with their organisations.

New divisions have emerged with people of various ages and lifestyles responding in differing ways and with diverse demands and needs. How deeply these divisions go, and whether they will diminish over time, is yet to be seen, but recruiter Robert Half is predicting that up to 9.4 million workers will leave their jobs in the first six months of 2022.

Outside, the world has also changed, with many new challenges emerging and developing. We are seeing clear signs of what McKinsey is calling “the second jolt” – rising inflation, huge geo-political uncertainty and soaring energy prices, to name a few. These will put pressure on organisations and individuals alike.

At the same time, many new regulatory and compliance issues will be confirmed over the coming months. The results of last summer’s consultation following the BEIS report “Restoring trust in audit and corporate governance” will be published this year and more details about the new regulator and reforms will emerge. Elsewhere, HMRC is ramping up its checks as the IR35 grace period, during which it agreed not to prosecute companies that did not comply, ends on 6 April.

The EU has drafted a new act governing the use of artificial intelligence (AI) in financial services organisations, which is expected to go into law later this year. Meanwhile, the UK has published its national AI strategy, which highlights the importance of having an effective regulatory and UK governance regime to support innovation and build consumer confidence and trust in AI technologies. Further developments based on this, including a white paper, a pilot AI Standards Hub and further analysis are promised throughout 2022.

Internal auditors must stay up to date with emerging risks and regulations, but broader than this, they must also consider the overarching issue of corporate reputation. As we have already seen this year, a perceived lack of integrity or competence can have huge implications for individuals, be they politicians, members of the royal family or international tennis stars, and this is just as true for organisations and brands. Once a reputation is damaged, it is notoriously hard to rebuild. Many of the current emerging risks have the potential to damage the reputations of those who fail to manage them well.

In a recent paper setting out potential “jolts” to growth originating in the pandemic, McKinsey argues that the priority must be to put organisations in a place to benefit from opportunities for growth in 2022 – lack of growth could itself cause a “jolt” that sets businesses back. How organisations respond to current uncertainties and reframe their strategies for the future will be critical.

The consultancy lists seven questions for chief executives and other leaders who need to prepare for what comes next – and these are also relevant to internal audit leaders who must support management making critical decisions and refocus their own teams and work. These include: are you investing as much time creating new businesses as you are improving your existing business; are you embracing new technology as quickly and holistically as you did new ways of working at the start of the pandemic; are you investing in human capital with the same discipline and intensity as your capital expenditures; and are you jump-starting a strong growth orientation in your leadership team and board?

If CEOs and organisations are going to pursue growth amid rapid change and uncertainty, they need to ensure that they fully understand existing and potential risks and trust that they have the processes and culture in place to support this growth ethically and sustainably. How robust is their governance? How much do they really know about their organisation and its emerging risks and are they basing their decisions on sound assurance, not on wishful thinking and crossed fingers?

These are all issues that should be at the forefront as organisations begin the new tax year in April. Internal audit has stood by the side of management during the worst period of global disruption we’ve seen outside war time. Internal auditors have helped to steady the ship – but now they must help management teams to navigate the stormy seas and start to chart new courses and move ahead in a changed and changing world.

As it did during the pandemic, the Chartered IIA will be there to offer support and guidance, provide platforms to share experiences and to connect people who may be able to offer each other advice when facing new challenges. As a profession, we are stronger together and can often come up with solutions that benefit more than one sector or location.

We recently published new guidance on “Cultivating a healthy culture” and will shortly be producing a piece of practical guidance on human capital that has been written
in conjunction with our European colleagues. We are also launching a new subscription service for audit committee members.

In June, we will announce the winners of our annual Audit & Risk Awards, which publicise and share the best work and the brightest innovations of members across the UK and Ireland. And, of course, our events and annual conference will pick up and explore key emerging themes that members need to understand to face the challenges ahead.

The world is changing and we too must change and prepare for the future – as individuals, as teams, as a profession and as an institute. 2022 is shaping up to be every bit as challenging as 2021. Now is the time to demonstrate that the work we do is as vital for supporting growth as it is for managing crises. 

This article was published in March 2022.